Investor Q & A with Andrew Reicher, Business Angel Investor
Aug 31, 2016
Darragh Cotter, Communications and Marketing Manager
In GOGLA's fourth investor Q&A, we speak with Andrew Reicher. Andrew is a business angel investor and a member of the investment committee of the specialist fund Energy Access Ventures. Andrew has 20+ years of private equity investment experience and 10+ years of investment banking experience.
Q: Many thanks Andrew for taking part in our investment Q&A series. Would you mind starting by briefly outlining your interest in the off-grid solar space and your investment in the sector to date?
A: My interest in GOGLA is as a follower of the off-grid movement for household and SME customers. I have now made ten personal business angel investments in GOGLA member companies in the past five years, and am a member of the investment committee of Energy Access Ventures Fund. Personally, therefore, I follow this sector with close attention and strong interest.
Q: Have you seen changes in investment in the different strands (on-grid, mini-grid and off-grid) represented in Unlocking Solar Capital Africa? Do you think the different strands compete with or complement one another?
A: Yes, there has been a lot of change and evolution of the three strands. There are beginning to be privatisations of grid utlities (Umeme in Uganda, Sonel in Cameroon and Eranove in Ivory Coast). But it’s still mostly state-owned and financially troubled. There’s more dynamism in mini-grid and off-grid. PAYG SHS has been the “flavour of the month” for at least 18 months, but there are signs that mini-grids are coming more back into favour after a lull. Everyone is realising that funding is the key and a lot of work is being done on this for both mini-grids and PAYG SHS. So Unlocking Solar Capital is very timely. My personal view is that the strands complement each other, but not everyone sees it that way. In the various strands, companies are suspicious of others and lobby for themselves as the “sole solution”. I think that’s a mistake.
Q: What do you see as the role of the donors and foundations in helping the off-grid solar sector to grow? Have you seen growth in investment levels within the off-grid sector in the past few years?
A: None of the mini-grid or off-grid companies which have grown could have done so without donor funds and grants/impact investments from foundations. Investment levels are growing, but especially in the early stages of companies’ lives, this sector is totally dependent on soft money.
Q: There have been a number of high profile success stories within the off-grid solar energy sector. Do you think that investors should be concentrating on growing these success stories even further or concentrating on replicating these successes?
A: I don’t think one excludes the other. Even the biggest success story is tiny in relation to the overall need. So investors should in my view be doing both.
Q: From an investment perspective, how do you think the off-grid solar industry gets to a stage where there are many multitudes of companies such as M-KOPA or Greenlight Planet, both of whom have received significant investment recently.
A: Success breeds success. So what is needed to encourage investment is pathfinders showing how it’s possible to make good returns from investing in mini-grid and off-grid businesses. This hasn’t happened yet. GLP and M-Kopa have attracted lots of money at high valuations, but none (or very few) of the original investors have sold out for a profit. That’s still some way off. There is a risk of disappointment if all the recent hype does not result in an IPO or a sale to a utility for a big gain over the next 24 – 36 months.
Q: What practical advice would you offer to companies seeking investment?
A: First, be transparent. Often, there’s great reticence to share information from fear that it might “leak” to competition. That’s not happened and it won’t happen. Second, be realistic about your plans and candid about what you don’t know and the risks. The investors are well aware of the uncertainties and are willing to work in partnership with company founders and managements to adapt their plans to reality as things unfold in the real world. On valuation, investors always encourage founders to “be reasonable”. That’s a subjective concept! However, the deal with the very highest valuation isn’t always the best. It’s not the $5m “A round” that really matters, but the $50m pre-IPO “D round”. Having a supportive group of a few investors who grow with you is better than a very fragmented shareholder base with varying motivations. I also think it’s better to have investors who know the sector than those following fashion from outside. Founders should also be generous in sharing equity with key members of their management teams through well-structured ESOP schemes.
Q: Unlocking Solar Capital Africa, taking place from 1-2 November in Nairobi, will bring together investors and businesses from across the solar energy sector. How important are events like this for the sector and for investors?
A: For me as a business angel, and EAV as a sector specialist, given how important finance is for the sector, this event in particular is both timely and essential!
Q: Individually, Andrew, you have been a GOGLA member for some time now. What do you think are the main advantages of GOGLA membership?
A: Being part of the network of the best informed and most influential actors in the sector. I genuinely believe that GOGLA has done a fine job of serving the mini-grid and off-grid community.